The latest amendments to Egypt’s Capital Market Law, recently approved by parliament, are set to attract more foreign investment into the Egyptian market, Mohamed Farid, chairperson of the Egyptian Exchange (EGX), said on the sidelines of the Annual Capital Markets Summit.
The amended law will deepen the financial markets in Egypt, Farid highlighted.
The amendments also facilitate the issuance of sukuk, set higher penalties for violations of the law, and set up a federation for non-banking financial companies similar to the Federation of Egyptian Banks, statement read. Egypt’s capital markets are underdeveloped relative to other African peers, Moody’s pointed out in a recent report.
“Egypt ranks 14th among the 17 African countries in Barclays Africa Group 2017 Financial Market Index, which uses a variety of parameters, both qualitative and quantitative, to record the openness and attractiveness of countries across the continent to foreign investment,” Moody’s said.
Increasing the products offered and investors’ ability to hedge will increase Egypt’s attractiveness to foreign investors, which would provide additional funding options for banks, the rating agency elaborated.
Currently, Egyptian banks are financed mainly by deposits, which accounted for 71% of non-equity liabilities as of October 2017.
“The income banks earn from their debt capital markets activity will increase, diversifying their operating income, which is heavily reliant on interest income earned from investment in government bonds,” Moody’s elaborated
As of October 2017, government bill and bond investments accounted for 31% of banking system assets and contributed more than 41% to banks’ interest income.
To divert much needed credit to the small and medium enterprise (SME) sector, the Central Bank of Egypt introduced regulations in 2016 requiring all Egyptian banks to allocate 20% of total loans to SME loans by 2020. Local SMEs, which account for around 80% of GDP and 75% of employment, cite a lack of access to credit as a main impediment to their growth.
“Despite the central bank’s initiative, loans for SMEs remain low at around 10% of total loans,” according to Moody’s estimates.
Meanwhile, Sahar Naser, minister of investment and international cooperation, said that the amendments aim to secure several financing alternatives in the coming period.
She explained that she relies on the government to study the laws and survey the opinions of industry leaders.
The minister said she is keen on keeping open channels of communications with investors to learn about their perspectives on different matters.
Nasr added that the ministry is also interested in doing its best in terms of legislative schemes to support non-banking economic reforms, pointing out that the ministry believes that the non-banking financial sector could become an engine to drive growth, especially the private sector, through supporting many reform programmes, such as introducing new tools to the Egyptian capital market.
She stressed that attracting foreign investment is a major target to stimulate the non-banking financial sector. She noted that foreign investments in the EGX have been growing, where there is a notable interest by financial foreign institutions in the Egyptian capital market, indicated by their enthusiasm for developing and supporting the ministry’s programme that was developed with institutions of the non-banking financial sector.